Moving forward

Hello everyone,

I first started posting 4 years ago and so in thinking about moving forward, thought I would come back to the experts!

Over the last 4 years, I have purchased...

IP#1: townhouse purchased 292k in Melbourne in 2014, now valued at 400k. Rent is 350 per week and Loan is 285k.
IP#2: house purchased 343k in Melbourne in 2016, now valued at 457k. Rent is 330 per week and Loan is 326k.

45k in an offset.

The above properties were bought in Melbourne's suburbs - nothing too special but seem to be ticking along.

I'm 34, not married and earn 103k per year (excluding super) in a stable job.

My goal is to purchase more houses with land content and be a little more proactive than previously and dabble in some renos.

Based on my current situation, moving forward what are your thoughts...

- Should I focus on increasing my income?
- Speak to a broker regarding borrowing capacity?
- Sit tight and assess property market in 12 months?
- Look at other investment options?

Any feedback would be much appreciated, thank you!

 

Hi @Do Androids Dream

Well done on your purchases so far.

What is your goal in terms of how property will help you over the long term?

Continuing to increase your income will definitely help in the current lending environment, as it will facilitate in you continuing to build your asset base.

 

Do 1,2 and 4.

 

Hi,

If I were you, I would definitely wait and collect more info about Sydney market and would thus be ready to get my foot in the door where the bearish market tends to slide more in the near future. Rumour has it that there will be a crash but data including stable inflows of overseas migrants suggests quite the opposite in the long run.

For me, negative gearing didn't work as my salary is much below yours. Instead, I restructured my investment portfolios to generate more cash flows building a strong cash position and keeping myself well ahead of loan repayments. It obviously helps strengthen my relationship with my financiers. As a result, after a year's time, some of them offered me a discount of 10 basis points (0.1%) of my current variable rates! Few of them even offered cash out for my next investment purchase.

Good luck!

Cheers,

 

All at the same time? @The Y-man

 

Thank you so much for your reply! @Property Twins

I would like to create an annual income from property if possible - between 70-100k per year.

I understand I may be restricted to 5 IPs due to my borrowing capacity, which is fast disappearing.

It would be great to have my own PPOR within the next 10 years (1 x bedder close to the city in Surry Hills; Elizabeth Bay; Rushcutters Bay, etc.) and I was hoping to already be at that point but I'm not sure if it's going to help me achieve my goal of an income stream. So, I am also willing to forego this and continue renting if I can still achieve my goal.

Then perhaps I could look at selling 1-2 down the track?

 

Hi @Harry30 do you think skip 3 because there's more growth in property to come?

 

Take a 20 year view. Whether you buy this year or next will make little difference over that horizon. So, err on the side of taking action now.

 

Thanks so much for your reply. Is there a particular area/s of Sydney that I should keep an eye on?

I had originally started looking at Western Sydney in 2013 when it started becoming warmer but was advised against it as "supposedly" it wouldn't last/had already become "too hot"... but hey, look what happened in 2014, 2015!

Now, I will never listen to nay-sayers again...

 

I gen avoid selling anything unless there is v limited growth prospects. A townhouse or unit I would avoid in every market except inner to mid ring syd or inner melb.
That townhouse looks to generate minimal rent, may not grow much ... is there an IO loan facility on it? what’s ur strategy for when IO Rolls over to P&I. U could b holding a cashflow drain with low growth needing repairs

Attached dwellings don’t grow in equity value OR rental yield as new ones pop up which cannibalise the existing rental demand and investor demand for depreciable and low maintainence resi assets

A lot of resi property is a form of enforced saving (via p&i repayments) rather than a true cashflow enhancing growth asset. As others says to keep buying u need to find ways to generate more cash outside property. Australia is unique where Govt policies and io loans have pushed up investor appetite way beyond what it should be

 

Write a business plan, the process will provide clarity and focus.

 

1,2 &4 but also..
I'd sell the townhouse if you're running out of servicing and are now out of options to move forward. It's probably had the bulk of its growth for a long while and it's costing you money to hold. Look for a better product you could put the proceeds into e.g you have a neg geared townhouse with no further options to produce equity (or cashflow) for several years vs putting the money in to a house somewhere with subdivide potential.

 

I feel we are entering a paradigm shift in regards to these cookie cutter “investor” townhouses and units...

Investors aren’t mugs... they are realising the growth is in land and emotional owner occupier product purchases mainly. Bris attached dwellings have been stagnant for a decade. the investor pool was already shrinking and the royal commission just accelerated the process as p&i makes such investments totally pointless imho

 

Totally agree. People go on about costs of selling and buying something else. Yes this is a cost, which is why you only use the money to buy something superior to what you sold..something with more short to medium term potential to make money than what you had. If you do that then selling will make perfect sense, otherwise feel free to spend the next 10-15 yrs pouring your wages into the place in the hope of another $100k or so when that suburb booms again.

 

@Do Androids Dream I agree with everything @Bris developer said about townhouses. They are the type of properties that I have never had in my portfolio since day one. I prefer free standing houses because of their potential future development be that dual occupancy, subdivision etc. and of land value appreciation. And yes, I would only buy town houses and apartments in gentrified suburbs where vacancy rate is low. It is a good indicator of high demand for properties, namely inner west and eastern suburbs. Nonetheless, not every inner west suburbs will have a low vacancy rate. A classic example of this is Homebush vs Sydenham. There is, no doubt, over-development in Homebush leading to high rise apartments putting pressure on infrastructure. The vacancy of Homebush is currently sitting at 3.2% as of July 2018, which is well above Sydney median vacancy rate of 2.8% and is higher than that of Sydenham and Tempe combined of 2.3%.

However, in my experience, torrens-titled properties such as duplex or triplex tend to return better rental yields than would free standing houses in inner south western Sydney. The reason being tenants do not value land! They only care about the accommodation i.e. conditions and convenience of the property they will be living in. Of course, my strategy is rental incomes generating positive cash flows so it may sound different to others'.

Check out the property at 12A Bertram St Yagoona NSW 2199. Originally, the price was 780-820k. It was then lowered to 759k after a month. Today it was sold for 725k whereas the duplex next to it (12 Bertram St) had been sold in Mar 2018 for 820k. Talk about a massive discount!

Make sure you have a strategy/strategies to stick to and learn from others. So far, PC community has been very helpful to me! Good luck!

Cheers,

 

CORRECTION: "Today it was sold for 725k whereas the duplex next to it (12 Bertram St) had been sold in Mar 2017 for 820k"

 

Thank you for your advice @Bris developer

There is an IO loan facility attached to it and when the IO rolls over in 2022, the current rent will just cover the P&I repayments. Assuming the rent does not rise, that is. However, I have managed to increase rent by $10 per year, so I am also expecting a few more increases.

Thankfully there's barely been any repairs over the last 4 years.

I agree, the area this townhouse is in is currently being overwhelmed by a number of other townhouse developments.

My first property has been a real learning experience. For future choices, I will be selecting an existing property, preferably a house, that I can add value to through minor renovations.

I have also been looking at upgrading my education and returning back to studies to boost my income to the maximum I can achieve through further qualifications...